Bank of England Predicts Further Financial Constraints

04-April-2008, Writes Dan Drage dan.drage@consumerchoices.co.uk

A survey conducted by the Bank of England suggests worsening credit conditions are set to intensify over the coming months.

The credit squeeze on households and businesses looks set to intensify as lenders grow increasingly nervous over the economic outlook.

The first quarter survey, conducted between February 25th and March 19th, showed lenders expect to reduce the availability of secured credit to households more stringently in the second quarter of 2008.

Many mortgage lenders, including First Direct (www.firstdirect.com) and Nationwide (www.nationwide.co.uk), have already increased their rates or withdrawn competitive mortgage products this quarter. The survey hints that many will follow in the coming months.

Other strong themes to emerge from the survey include the increased occurrence of defaulted payments by both households and commercial companies.

The following are direct quotes from the survey:

"Personal borrowing in Britain soared by its highest amount in more than five years during February 2008"

‘In the three months to mid-March, lenders reported a reduction in the availability of credit across the full range of their lending activities to households and corporatates’

The survey continues:

‘Lenders expected a further reduction in credit availability over the next three months.’

Data published on Wednesday showed personal borrowing in Britain soared by its highest amount in more than five years during February 2008, as consumers rushed to raise what funds they could in the wake of the credit crisis.

Chris Eagle, Commercial Manager at Credit Choices, considers a dynamic savings account to be a useful tool during these uncertain times:

'In order to circumnavigate the credit crisis successfully, a high rate paying savings account is essential. Interest rates on savings accounts have risen by 1.2% since January 2007. We recommend the Icesave Fixed Rate Savings Account (www.icesave.co.uk) and the Abbey ESavers Account (www.abbey.com), both of which offer a high AER.'

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Bank of England Predicts Further Financial Constraints